Cities seek more money from tax-exempt colleges

By David Klepper -
Associated Press -
Monday, May 7, 2012

PROVIDENCE, R.I. (AP) — Wary of tax increases, weary of layoffs and determined to avoid bankruptcy, Providence Mayor Angel Taveras had only to gaze up at his city’s Ivy League campus to see a way out of the morass.

On College Hill sits Brown University, with a $2.5 billion endowment and property worth an estimated $1 billion. Brown would pay the city $38 million in property taxes each year — more than enough to solve the city’s budget problems — if only it wasn’t tax-exempt.

And so city officials and state lawmakers applied some pressure to the university, and last week Brown agreed to contribute $31.5 million to Providence over the next 11 years. The money comes on top of nearly $4 million that Brown already voluntarily gives the city yearly.

The town-vs.-gown confrontation reflects a trend across the nation as cities desperate for revenue try to get more money out of tax-exempt institutions such as universities and hospitals.

These institutions argue they already contribute to a city’s economy and quality of life through jobs, economic activity and community services. But as cities grapple with deficits and cash-flow crunches, they are succeeding in getting nonprofits to pay up.

“It’s about all of us trying to help the city and the state grow,” Mr. Taveras said. “If we want to see Rhode Island succeed, we will never get there without Brown.”

David Thompson, vice president of public policy at the National Council of Nonprofits, wryly calls such agreements “mandatory volunteerism.”

“It’s ‘We need money, you have money, and we’re going to pressure you to do this unless you give us a voluntary payment,’” he said.

Baltimore officials, for example, threatened to tax hospital and university dorm beds before Johns Hopkins University and other tax-exempt institutions agreed to make contributions.

Boston, with one of the biggest concentrations of colleges, universities and research centers in the country, collects significant amounts of money from such institutions. Harvard University, Boston University, Massachusetts General Hospital and several other institutions made $34 million in payments in lieu of taxes in 2010 in what the city says is the biggest such program in the nation.

In Lancaster, Pa., the city sends out letters every year asking nonprofit organizations to pay one-third of what would have been their tax bill. Lancaster General Hospital pays more than $1 million voluntarily, more than its taxes would have been, Mayor Rick Gray said.

“They said they feel they should be supportive of the community,” he said. “We’re certainly grateful.”

Brown has enjoyed a tax exemption since Colonial days but decided to kick in more money because it sees itself as a partner in Providence’s economy and because it wants good relations with the city, said Brown University President Ruth J. Simmons.

“The idea that we have an endowment, a budget that will bear these kinds of costs is not correct,” she said. Still, she said, it was obvious that this was “a time that requires we step up.”

The use of payment-in-lieu-of-tax deals is on the rise. Such agreements have been carried out in at least 18 states since 2000, mostly in the Northeast, according to a study by the Lincoln Institute of Land Policy.